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2016 (1) TMI 1303 - AT - Income TaxRevision u/s 263 - disallowance under section 14A - Held that - From the perusal of Balance Sheet as on 31.3.2009 placed at Paper Book 74, we see that further investment of ₹ 194.99 lacs was made during the year in equity shares of Jai Suspension System Limited. Further, on perusal of the same Balance Sheet, we see that the total investments are ₹ 721.99 lacs while the owned funds are amounting to ₹ 12,371.46 lacs, which further proves the fact that these investments were also made out of owned funds only. In view of the above, it is true that the assessee has made investments out of owned funds and no borrowed funds were used for such investments. In such a scenario, no disallowance under section 14A of the Act is called for. AO was fully seized of the matter, he initiated the enquiry, which was fully co-operated by the assessee. AO got satisfied and did not make any disallowance. In such a scenario, the Commissioner of Income Tax cannot impose his opinion on the decision taken by the Assessing Officer. Since it is AO s satisfaction which matters for making such a disallowance. On the facts and circumstances of the case, the Assessing Officer did not find it appropriate to carry on any elaborate investigation. It is Assessing Officer s prerogative to decide the extent of enquiry or investigation to be carried out by him. There is no law which directs the Assessing Officer the extent of enquiry to be made in such a case. This is, undoubtedly, not a case of lack of enquiry. Though we do not find it even a case of inadequate enquiry, even in that case, the Commissioner of Income Tax does not get the jurisdiction under section 263 - Decided in favour of assessee..
Issues Involved:
1. Jurisdiction of the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961. 2. Application of section 14A of the Income Tax Act, 1961 regarding disallowance of interest expenditure related to exempt income. 3. Adequacy of the Assessing Officer's enquiry and decision-making process. Issue-wise Detailed Analysis: 1. Jurisdiction of the Commissioner of Income Tax under section 263 of the Income Tax Act, 1961: The primary issue raised by the assessee was that the Commissioner of Income Tax (CIT) did not have the jurisdiction to revise the order framed by the Assessing Officer (AO) under section 263 of the Act. The learned counsel for the assessee argued that the AO had duly applied his mind while passing the order under section 143(3) of the Act. The assessee provided documentary evidence, including a questionnaire issued by the AO and the assessee's detailed responses, to demonstrate that the AO had sought and received information regarding the source of investment in Jai Suspension System Limited. The assessee contended that since the AO had considered these details and decided not to make a disallowance under section 14A, the order could not be deemed erroneous or prejudicial to the interest of the Revenue. 2. Application of section 14A of the Income Tax Act, 1961 regarding disallowance of interest expenditure related to exempt income: The CIT observed that the assessee had made significant investments in the equity shares of Jai Suspension System Limited and was also debiting heavy amounts of interest to the Profit & Loss Account. The CIT believed that a proportionate interest disallowance should have been made under section 14A of the Act. The CIT argued that the share capital and share premium raised by the assessee had been utilized for repaying loans, and fresh loans amounting to Rs. 18.12 crores were raised, part of which was used for investment in shares. The CIT held that if the assessee had not invested in shares, it would not have needed to raise loans to that extent. Consequently, the CIT directed the AO to cancel the order dated 28.1.2013 and frame a fresh assessment after affording reasonable opportunity to the assessee. 3. Adequacy of the Assessing Officer's enquiry and decision-making process: The Tribunal examined whether the AO made an adequate enquiry regarding the disallowance under section 14A. The Tribunal noted that the AO had issued a questionnaire during the assessment proceedings, specifically asking for details of dividend income and the source of investment in shares of Jai Suspension System Limited. The assessee had provided a detailed response, explaining that the investments were made out of owned funds and not borrowed funds. The Tribunal found that the AO had raised a relevant query, received a satisfactory reply, and decided not to make any disallowance under section 14A. The Tribunal emphasized that it is the AO's prerogative to decide the extent of enquiry or investigation to be carried out and that the CIT cannot impose his opinion over that of the AO. Conclusion: The Tribunal concluded that the AO's order was not erroneous or prejudicial to the interest of the Revenue. The AO had raised a pertinent query, received a detailed response, and made a conscious decision not to disallow interest under section 14A. The Tribunal held that the CIT did not have jurisdiction under section 263 to revise the AO's order. Consequently, the Tribunal set aside the CIT's order and allowed the appeal of the assessee.
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